Understanding the House Down Payment

Calculating your down payment is an important step in the homebuying process. Put simply, a down payment is a portion of the purchase price that you agree to pay out-of-pocket as the first payment on the home. Most of the time, your principal mortgage loan is less the amount of your down payment. The down payment is usually paid with a check, cash or electronic payment.

Saving Money

Saving for the down payment is the first step in the homebuying process. Some guides suggest aiming for approximately 20% of the total home price as a starting goal. You can calculate your down payment by figuring a percentage of the lowest and highest priced homes you are considering. This can be just an early estimate and does not have to be set in stone.

Home Loan Eligibility

The down payment amount will likely affect the type of loan you are eligible for, interest rates and overall loan costs. Whether you decide to save for and ultimately make a lower or higher down payment depends on several factors. For example, some mortgage lenders require a minimum percentage of the home price to be put down. Others have no minimum or could offer specific benefits at incremental down payment percentages.

Interest Rates for Buying a Home

A higher down payment can help you obtain a lower interest rate on your mortgage loan. Similarly, down payments of at least 20% could help you to avoid paying private mortgage insurance (PMI) and other fees. One of the biggest advantages of a higher down payment is that it lowers the overall mortgage loan total, and in turn creates a lower monthly payment over the lifetime of the loan.  

On the flip side, a lower down payment percentage may allow you to buy your new home sooner, and could also mean that you have more money available for things like repairs, unexpected expenses and other financial needs. Your final decision will likely reflect your overall priorities in your homebuying plans.

Additional Funds

Keep in mind that you may need additional funds for closing costs and potential renovations or emergencies soon after you purchase your home, so the down payment should not be all of your total available funds.

The Summit Federal Credit Union Mortgage Team is ready to help you plan and evaluate your down payment options. With representatives in five local upstate New York regions, you can be sure that your support will be local and able to address all of your mortgage needs.